Monday, 25 June 2012

But what about prices?

The McKinsey Global Institute (MGI) finds these trends gathering force and spreading to China and other developing economies, as the global labor force approaches 3.5 billion in 2030. Based on current trends in population, education, and labor demand, the report projects that by 2020 the global economy could face the following hurdles:

38 million to 40 million fewer workers with tertiary education (college or postgraduate degrees) than employers will need, or 13 percent of the demand for such workers

45 million too few workers with secondary education in developing economies, or 15 percent of the demand for such workers

90 million to 95 million more low-skill workers (those without college training in advanced economies or without even secondary education in developing economies) than employers will need, or 11 percent oversupply of such workers

But what about prices? Don't prices adjust when there is a shortage or over supply? An econ 101 supply and demand diagram tell us they do. If there really is a shortage of workers with tertiary education will the wages paid to those with such education raise, thereby giving an incentive to gain tertiary qualifications? If there are too many workers with low levels of skills will their wages not drop, thereby giving an incentive to gain additional education?

Talking about changes to markets without taking into account prices does seem a little strange.